HKEX(US:HKXCY)2024-07-02 02:23Investment Rating - The report maintains a "Buy" rating on Hong Kong Exchanges (HKEX) with a 12-month target price of HK$345, indicating an upside potential of 37.9% from the current price of HK$250.20 [7][12][14]. Core Insights - HKEX has initiated a consultation on reducing minimum spreads in the Hong Kong Securities market to lower transaction costs and enhance liquidity, aligning with the HKSAR government's budget speech on improving market efficiency [2][3]. - The proposed changes will be implemented in two phases, with Phase 1 targeting price bands between HK$10 and HK$50, reducing minimum spreads by 50% to 60%, and Phase 2 focusing on price bands between HK$0.5 and HK$10, reducing spreads by 50% [3][4]. - The expected impact of these changes is significant, with over 75% of the market (by average daily trading volume) projected to achieve optimal bid-ask spread levels after the implementation of the proposed changes [4][6]. Summary by Sections Consultation Details - The consultation period for the proposed changes will end on September 20, 2024, with a timeline for implementation that includes a 6-month observation period for Phase 1 before moving to Phase 2 [3][6]. Market Impact - The bid-ask spread reduction is expected to affect over 280 securities, representing approximately 29% of equity average daily trading (ADT) in Phase 1 and 24% in Phase 2, based on data from 2021-2023 [4][6]. - A reduction of 15 basis points in bid-ask spread is anticipated to improve trading velocity by 18 percentage points, potentially increasing HKEX's ADT by 30% [6][12]. Financial Projections - The report projects a 7% compound annual growth rate (CAGR) in HKEX's ADT from 2024 to 2026, indicating that the anticipated changes are not heavily reliant on improvements in Chinese corporate earnings [6][12]. - Revenue projections for HKEX are estimated to grow from HK$20.52 billion in FY23 to HK$23.64 billion by FY26, with earnings per share (EPS) expected to increase from HK$9.37 to HK$10.50 over the same period [14].